Role of traders comes under Sebi lens as prices of pulses zoom

Supporting the government’s view that the recent sharp rise in prices of pulses is partly due to speculation and bad monsoon, Securities and Exchange Board of India (Sebi) chairman UK Sinha on Monday warned commodity players of strict action if they were found involved in irregularities.

Droughts in Maharashtra and Karnataka and hoarding by speculators has led to an acute shortage, especially arhar and tur, leading to the artificial surge in prices.(Reuters File Photo)

Supporting the government’s view that the recent sharp rise in prices of pulses is partly due to speculation and bad monsoon, Securities and Exchange Board of India (Sebi) chairman UK Sinha on Monday warned commodity players of strict action if they were found involved in irregularities.

“In channa contracts, if you look closely, you’ll find that next month’s future market is showing backwardation… which means that the future price is lower than the spot price,” Sinha said. “This indicates that those who are hedging in the market are taking the call that prices will fall. We are watching the situation very closely. You are aware that various states have organised raids and seized stocks. If we find that any of those who have violated the Essential Commodities Act, or the Control Orders, are also players in the commodity market…it makes a case for Sebi to take strong action.”

Backwardation happens when a commodity sees a positive demand, or is hit by acutely low supplies, leading the short-term price to rise above long-term levels, as consumers want to store the commodity immediately despite the high cost.

Droughts in Maharashtra and Karnataka and hoarding by speculators has led to an acute shortage, especially arhar and tur, leading to the artificial surge in prices.

To stem the sharp rise in prices, the government conducted raids and in various states and seized about 50,475 tonnes of illegally hoarded lentils.The Centre has also decided to create a buffer stock of 40,000 tonnes, besides selling imported pulses at cheaper rates and imposition of stock limits on traders as well as departmental stores, licensed food processors, importers and exporters.

Last week, finance minister Arun Jaitley met importers and traders, where the latter offered to supply 100,000 kg of tur dal per day at Rs 135 per kg, but requested the government to exempt them from stock-holding limits.

Speaking at the ‘India ETF Conference 2015’ organised by the National Stock Exchange, Sinha also cautioned market intermediaries to guard against frauds in financial innovations such as exchange-traded funds (ETFs). “If we are able to avoid those risks, make proper disclosures, are able to communicate properly then ETF has a very good chance of growing in India and provide good services to the investors.”

Prices of pulses, a staple of the Indian diet has more than doubled since January and now costs more than chicken.